By Teresa Rivas

Wal-Mart (WMT) was falling Tuesday afternoon, hurt in part by a downgrade at William Blair.

Analysts Mark Miller and his team cut their rating on the stock to Underperform from Market Perform (in-line with their bearish rating on rival Target (TGT)). They write that their main concerns are Wal-Mart’s size, which hampers growth and dynamism (and invites scrutiny), competition from online retailers, and the possibility that investors will rotate out of retailers in general at this state of the economic cycle.

They expand on these headwinds below:

While Wal-Mart has many scale advantages, we perceive the company’s size also poses unique challenges. The company is held to high standards—for employee wages, its impact on the environment, and global compliance—as it should be, but Wal-Mart operates under the microscope in ways that many of its smaller competitors do not.

Execution and the customer experience at the store level are concerns. Wal-Mart’s domestic comp-store sales are trailing broader retail sales growth, and same-store traffic is declining (domestically and across most international markets). Whatever the reasons, customer satisfaction at Wal-Mart is significantly lower than that of other retailers in our coverage.

Merchandising innovation has decelerated, in our estimation, resulting in a smaller uplift to sales. Specifically, we have observed a steady decline in the number of new product introductions over the past several years.

While we view the expansion of smaller stores as a prudent strategy, given rising importance of convenience for the consumer, we believe that cannibalization of trips to Wal-Mart Supercenters is inevitable to some degree, and we believe this could weigh on return on capital over time.

We have previously highlighted the risks to retailers as e-commerce grows, but we have viewed Wal-Mart to be partly insulated, considering its competitive pricing, the lower-income customer is less apt to shop online, and the large percentage of food and perishable product sold. Increasingly, though, we are concerned that Wal-Mart’s store base is ill positioned for a consumer that is increasingly buying individual items online, reducing the appeal of Wal-Mart Supercenters with wide assortment. In addition, e-commerce competition is broadening from Amazon (AMZN) to include flash-sale sites and cross-border trade.

Given the downgrade, Miller reduced his annual EPS estimates for this year and next by a dime, to $5.15 and $5.50. He also cites sluggish retail sales in the first quarter and weak consumer confidence in low-income households, many of which are dealing with the expiration of benefits from the Supplemental Nutrition Assistance Program (SNAP) and higher healthcare costs.

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